One of the things schools missed out on teaching is how to pay taxes properly. This complication is further exacerbated when you must pay taxes as an expat in a foreign country. This is especially true if you have assets, accounts, or shares, and are required to file the IRS form 8938.
The IRS Form 8938 is one of the most important forms you must complete as an expat. If you’re unsure what IRS Form 8938 is or how to file it, don’t worry. This article will answer the most frequently asked questions about IRS Form 8938.
IRS Form 8398 FAQs: What You Need to Know
1. What is the IRS Form 8938?
You use the IRS Form 8938 or the Statement of Specified Foreign Financial Assets to report your specified foreign financial assets if their total value exceeds the appropriate reporting threshold.
While there is some overlap between that and the foreign financial accounts to report on the FBAR (Report of Foreign Bank and Financial Accounts or FinCen Form 114), Form 8398 is more extensive. Failure to comply can result in more penalties. Form 8938 includes information not included on the FBAR, such as:
- The exchange rate you used
- The type and quantity of income
- Whether or not you established the asset or account during the tax year
- Whether or not you closed the asset or account during the fiscal year
- Whether or not you jointly owned the asset or account with your spouse
2. Who should file IRS Form 8938?
Unless an exception applies, if you are a specified individual with interest in specified foreign financial assets worth more than the applicable reporting threshold, you must file Form 8938. You must report any specified foreign financial assets in which you have an ownership interest, even if none of the assets affect your tax liability for the year.
Reminder: If you do not have to file an income tax return for the tax year, you do not have to file Form 8938 either, even if the value of your specified foreign financial assets reaches or exceeds the reporting threshold.
3. Who is a “Specified Individual”?
A specified individual is any of the following:
- A U.S. citizen
- A U.S. resident alien for any portion of the tax year (You are a resident alien if you are treated as such for tax purposes in the United States under the green card or substantial presence test.)
- A nonresident alien who chooses to be treated as a resident alien for the purposes of filing a joint income tax return
- A nonresident alien who lives in American Samoa or Puerto Rico
Read more about Publication 519 or the U.S. Tax Guide for Aliens to give you more information about tax status and whether or not you have to file taxes.
4. What are the foreign financial assets that I have and don’t have to file?
Savings, deposits, checking, and brokerage accounts with a bank or broker-dealer are examples of financial accounts that you must report on Form 8938.
You must also report stock or securities issued by someone who is not a U.S. citizen, any other interest in a foreign entity, and financial instruments or contracts held for investment with an issuer or counterparty who is not a U.S. person if held for investment and not held in a financial account.
Here are examples of assets that you must report if not in an account:
- Stock or securities issued by a foreign corporation
- Real Estate
- Precious Metals
- Shares or Stocks
- Tangible Assets (Cars, Jewelry, etc.)
- Safe Deposit Box
- Note, bond or debenture issued by a foreign person
- Interest rate swap, currency swap, basis swap, interest rate cap, interest rate floor, commodity swap, equity swap, equity index swap, credit default swap, or similar agreement with a foreign counterpart
- An option or other derivative instrument with respect to any of these examples or with respect to any currency or commodity that is entered into with a foreign counterpart or issuer
- A partnership interest in a foreign partnership
- An interest in a foreign retirement plan or deferred compensation plan
5. What will happen if I forget to or don’t file IRS Form 8938?
Failure to complete and file a correct Form 8938 by the due date, including extensions, could mean a $10,000 penalty.
The IRS will then mail you a notice of failure to file. If you still do not make any move 90 days after the notice, you may be subject to an additional $10,000 penalty for each 30-day period (or part of a period) during which you fail to file Form 8938 after the 90 days has expired.
A continuing failure to file Form 8938 carries a maximum additional penalty of $50,000.
6. When Should I File It?
Attach Form 8938 to your individual tax return and file by the due date (including extensions). The deadline usually falls on the Tax Day of the year or April 15.
7. Is there a Statute of Limitations?
If you do not file Form 8938 or report a specified foreign financial asset, the statute of limitations for the tax year may remain open for all or a portion of your income tax return until three years after the date you file Form 8938.
You can extend the statute of limitations for failing to include income. If you fail to include in your gross income an amount relating to one or more specified foreign financial assets, and the amount omitted is greater than $5,000, any tax owed for the year can be assessed at any time within 6 years of filing your return.
Last But Not the Least—Should I Consult with an Expat Tax Expert?
One of the most perplexing aspects of filing taxes as an expat is determining which forms to complete and what income to report. Form 8938 is one of the more complex forms you’ll come across. So, if you need help with wealth management and tax preparation and resolution, Tax Samaritan can help. Eliminate all risks by ensuring the accuracy and thoroughness of tax preparation.